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Bank charges test case starts this week

14 January 2008 / by Rachael Stiles
This Wednesday, January 16, will mark the beginning of the test case which will determine the legality of bank charges, which the Office of Fair Trading says are unlawful but which the banks maintain are within the realms of fairness.

The eight big banks and a building society – Abbey, Barclays, Clydesdale, HSBC, HBOS, Lloyds TSB, Royal Bank of Scotland and Nationwide – refused the OFT's offer to settle out of court by voluntarily reducing the charges to cover only administration costs and now stand to repay up to £5 billion if the court rules in favour of the consumer.

Unsatisfied customers have already claimed back as much as £1 billion since the OFT declared the charges implemented for exceeding authorised overdrafts and bouncing cheques to be disproportionate, with HSBC alone refunding £120 million. Banks have been charging up to £40 per time instead of the £12 which the OFT said is acceptable, making a reported £3.5 billion profit a year at the expense of their customers.

However, there has been a freeze on reclaiming bank chargesuntil the case has been clarified by law and the Financial Ombudsman Service discontinued investigating the charges until an official ruling has been made.

A decision is not expected for several months, while the OFT and the banks battle it out in court, and if the OFT succeeds and the banks lodge an appeal then it could be another 12 months before a final decision is reached, according to consumer watchdog Which?

Until the case is settled, only those in genuine financial hardship will be considered by banks for a refund on their bank charges, but consumer groups are urging customers to continue to send their claims in while the case is on-going for a potentially swifter refund if the court rules that the charges are indeed unfair and unlawful.

In order to help them make a decision, the court will consider the Unfair Terms in Consumer Contracts Regulations and whether or not they are applicable to bank charges, which will be the first time these regulations have been tested within the realms of the banking industry.

The case "will not address whether terms and conditions or specific charges of individual banks are unfair", but the OFT will continue "analyse information supplied by the banks, and further information on the investigation into unfairness will be published after the judgment has been delivered and OFT has had time to consider any implications."

Given the case's importance to the public, in order to determine who will ultimately win the war, the case is expected to go to the House of Lords for a final decision, regardless of who wins this initial battle.

© Fair Investment Company Ltd